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Residential mortgage debt hits $2.16 trillion amid slowest growth in 23 years: CMHC

Canada's total residential mortgage debt reached $2.16 trillion in February, marking a 3.4% increase from the previous year. This is the slowest growth rate in 23 years, according to a new report from the Canada Mortgage and Housing Corporation (CMHC).

The federal housing agency attributes the sluggish growth to higher mortgage costs and uncertainty about when the Bank of Canada might lower its key interest rate. These factors have led to softer home sales and prices in many regions during the latter half of 2023.

Despite this slowdown, the CMHC anticipates that mortgage debt growth will pick up again soon. The agency predicts higher home sales and prices in the coming years, spurred by expected declines in mortgage rates, population growth, and increases in real disposable incomes.

"In a context where debt levels have never been so elevated and households are showing increasing warning signs of financial struggle, household debt vulnerability is becoming a primary area of concern," said CMHC deputy chief economist Tania Bourassa-Ochoa in a press release. She emphasized that as homeowners find it harder to manage their monthly budgets, policymakers and the financial sector must remain vigilant about risks to the financial system and economy.

The report also noted that borrowers are increasingly choosing shorter-term, fixed-rate mortgages over the traditional five-year terms due to uncertainty about future mortgage rates. This trend persists even though lenders offered significant discounts on five-year fixed-rate mortgages in early 2024, reversing a trend from the latter half of 2023.

Lenders are anticipating potential rate cuts by the Bank of Canada and are keen to lock in mortgages at relatively high rates. As a result, terms ranging from three years to less than five years became the most popular choice, accounting for nearly 40% of all new mortgages in February 2024. Meanwhile, variable-rate mortgages made up 15% of new lending.

The national mortgage delinquency rate was 0.17% in the fourth quarter of last year, still near historic lows but starting to rise for the first time since the pandemic began.

The report also highlighted a shift in market share among lenders, with the Big Six banks increasing their share of newly extended mortgages by 11.8 percentage points in the fourth quarter of 2023. This was driven by a rise in refinances and renewals, while other chartered banks and credit unions saw declines of 6.9 and 3.1 percentage points, respectively.

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